Stocks Close Modestly Lower Amid Profit Taking - U.S. Commentary

By IBT Staff Reporter On 08/10/09 AT 4:38 PM

RTTNews - Stocks posted modest losses on Monday, as traders cashed in on recent gains amid a lack of significant moves. The major averages all finished in negative territory, kicking off the week on a sour note.

The decline came ahead of some key economic reports on tap for this week, including data on retail sales, industrial production and weekly jobless claims.

Further, the Federal Open Market Committee will make its interest rate announcement on Wednesday, with the key fed funds rate expected to remain unchanged amid a challenging economic environment.

On the corporate front, Freddie Mac (FRE) said late Friday that it no longer needs government aid, as the mortgage lender posted a positive net worth.

Benefiting from accounting adjustments and gains, Freddie Mac reported a second quarter profit of $821 million on a notable increase in revenues to $7.47 billion from last year's $1.59 billion.

Warren Buffett-owned Berkshire Hathaway (BRKA) reported a 14 percent increase in second quarter earnings, fueled by gains from derivatives trading, which soared to $1.53 billion from $453 million in the second quarter of last year. The firm earned $1,147 per share, while Wall Street analysts expected the company to earn $1,238 per share for the quarter.

Microsoft (MSFT), which recently struck a ten-year deal with Yahoo (YHOO) to share search engine technology and ad revenue, announced an agreement with French ad company Publicis to sell its Razorfish digital advertising unit.

The major averages regained some ground going into the close of trading, although they remained stuck in the red. The Dow closed down by 32.12 points or 0.3 percent at 9,337.95, the Nasdaq slipped by 8.01 points or 0.4 percent to 1,992.24 and the S&P 500 fell by 3.38 points or 0.3 percent to 1,007.10.

Sector News

Steel and gold stocks fell by notable margins, with the NYSE Arca Steel Index and the NYSE Arca Gold Bugs Index posting losses of 2.8 percent and 2.5 percent, respectively. Despite the pullback, the indices remained stuck in recent ranges amid a lack of conviction in commodity prices.

Airline stocks also saw significant weakness, with the NYSE Arca Airline Index retreating by 2.5 percent on the session. With the loss, the index pulled back off the more than six-month closing high it set on Friday.

The index was dragged down by shares of Delta Airlines (DAL), U.S. Airways (LCC) and Ryanair (RYAAY), which all fell by more than 4 percent on the session.

Housing and commercial real estates stocks also retreated, with the Philadelphia Housing Sector Index sliding by 3.4 percent, while the Morgan Stanley REIT Index fell by 2.4 percent on the day. The housing index backed off of its best closing level in ten months, while the real estate index pulled away from a nine month closing high.

While additional downside was visible among railroad, retail and wireless stocks, some electronic storage, healthcare provider, and natural gas posted strong gains, limiting the downside for the markets.

Dow Components

The retreat by the Dow was led by shares of 3M (MMM), which dropped by 2.7 percent on the day. With the loss, the stock backed off of its best closing price in nearly a year.

Additionally, Cisco (CSCO) and Alcoa (AA) also fell, sliding by 2.5 percent and 2.4 percent, respectively. With the decline, the stocks retreated away from their highest closing prices in ten months posted late last week.

The gain by McDonald's came after the company announced that its global comparable sales rose 4.3 percent in July, benefiting from a 7.2 percent jump in sales in Europe. The stock closed up by 1.9 percent, bouncing further off the two-month closing low set last Thursday.

Meanwhile, the major European markets turned in a mixed performance, with the French CAC 40 Index and the German DAX Index closing down by 0.5 percent and 0.8 percent, respectively, while the U.K.'s FTSE 100 Index rose by 0.7 percent.

In the bond markets, treasuries saw considerable gains amid the pullback on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, closed at 3.771 percent, a loss of 8.3 basis points.

Looking Ahead

Tuesday, traders will delve into data from the Labor Department on productivity and costs for the second quarter. Productivity is expected to jump to 5.5 percent on an annual rate compared to 3.0 percent in the previous quarter, while costs are forecast to decline by 2.5 percent after rising by 3.0 percent in the last period. The report is due out at 8:30 a.m. ET.